AAPL is approaching $500b Market Cap, and has $100b in cash. Sooner or later it's going to become a cash drag, although maybe not immediately right now. Look at Buffett, he's asking you to help him find things to buy because he's running out of ideas. Anyhow, how can we all be trusting that this isn't another bubble all directed into a single stock? A lot of people buy this thing because they believe it's their saving grace without knowing the fundamentals.

GOOG is big too, yet all those new ideas are still not generating them enough to deem them truly useful compared to good ol' bread and butter Search.

Cash drag? If apple does not squander its cash, they will have the entire market cap in cash within 5 years time. Think about that. Apple could theoretically buy itself in 5 years with no share price appretiation from here. Apple should not have a negative future value so the share price will rise.

Stock buybacks don't often transfer wealth to shareholders. Stocks can and do go down when companies buy back shares. Just ask HP.

There are many reasons to buy back stock but in the case of Apple doing so would strengthen each share. It would be, among other things, an indication from Apple that their stock price is undervalued.

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A dividend however is a direct transfer of company profits to shareholders. That's why a lot of people invest in stocks.

People who buy stocks to get dividends from a stock that doesn't offer dividends is an idiot. I say this as a person who retired at 30 and lives solely off my stock dividends. I bought Apple and other non-dividend stocks because I expected a growth in the stock value itself.

In general I don't think it's a good idea for tech companies to pay dividends because of the volatility of the market. Apple can surely afford to pay them but look back to when people expected Apple to pay them. They now pay out more in lump sum cash payments for components than they had cash just a few years ago. In tech you need a bigger safety net than other markets.

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I remember Steve talking about focus and how that meant saying NO to ideas. Some that are even good ideas but that by saying NO to some ideas that allowed their focus to be sharpest on the best ideas.

This is a ridiculous idea for a tech company like Apple. Its beyond their core competency and I would sell Apple stock immediately if they announced such a stupid plan. I think others would as well.

If we just consider a bank and nothing else it looks silly but if we consider what a modern banking system is what Apple has that mirrors that it doesn't look silly at all. Consider the 400 million CCs Apple has on file. Consider all the machines (which include Windows via iTunes) that are tied to their transaction servers. Sure, "PC guys aren't just going to figure this out" but remember how that worked out the last time someone said that and note that what Apple does iTunes Store back end is a lot closer banking than what they done with a cellphone. Now consider that NFC is banking and will not take off until a company like Apple can get behind it to tie all the parts together.

PS: You can already go into an Apple Store and use your iPhone to buy a product without interacting with the staff. It deducts from the card you have on file with iTS and the receipt is emailed to you.

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Stock buybacks are easy. Let's say that the market values the entire company at $500 B and there are 1 B shares. That means that each share is valued at $500.

Now, if Apple buys back 10% of its shares, there are only 900 M shares in circulation, but the market valuation doesn't change (the cash is replaced with something of equal value - the shares). So the share price would be about $555.

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Originally Posted by GregInPrague

You're 5th point doesn't seem like a rational argument to me.

Wouldn't it make much more sense to compare the price of any of the mentioned stocks against themselves from before they instituted a dividend and then afterward (maybe trailing and following 6 months/1 year)? Then you can see what offering a dividend did to that particular stock. If you do a broad enough survey you should be able to see a reliable pattern. Comparing those stocks relative to Apple is completely illogical when deciding if beginning to issue a dividend is beneficial for Apple.

It's possible that a company's stock price doesn't generally benefit from beginning to issue a dividend, however my guess would be that it does. Otherwise there would be no incentive for companies to offer them.

There is absolutely no valid evidence to support your argument that a dividend increases share price. In fact, you will find that dividends tend to be used by companies with low or no growth and companies with fast growth tend not to use dividends. Basically, you use a dividend if you can't find a way to invest the money in the business to grow the business.

Your choice of examples is actually not as good as mine, but if you want to have it that way, look at Microsoft's growth rates before they started giving a dividend and after. They grew a rapid rates until they started the dividend and they've been flat (or down) since then.

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

That makes no sense. Apple will make close to $50 EPS or over $50 billion in profit this year. They are also growing earnings over 100% year over year. Apple has FAR more money than they need and the cash is generated rapidly. The point of a publicly traded business is to return value to its owners, the shareholders. This is a good thing. It points to apples strength not weakness.

Good luck making that case around here. Most people on this board not only don't understand this principle, they adamantly and aggressively misunderstand it.

Agreed. As an AAPL shareholder I don't want that $50 per share, I really don't. Keep it in the pot for when times are hard, because at some point, times will get hard. I can't personally see any potential for negativity in 5 or 10 years or more, but it will happen.

This is just plain bizarre reasoning. Please think about what you are saying. If Apple ever had to fund operations out cash reserves, then this would mean the company is losing money. Would you seriously want to be an AAPL investor if they went from being one of the most profitable companies on the planet to losing money?

Wouldn't it make much more sense to compare the price of any of the mentioned stocks against themselves from before they instituted a dividend and then afterward (maybe trailing and following 6 months/1 year)? Then you can see what offering a dividend did to that particular stock. If you do a broad enough survey you should be able to see a reliable pattern. Comparing those stocks relative to Apple is completely illogical when deciding if beginning to issue a dividend is beneficial for Apple.

It's possible that a company's stock price doesn't generally benefit from beginning to issue a dividend, however my guess would be that it does. Otherwise there would be no incentive for companies to offer them.

jragosta's 5th argument also doesn't make sense because he contradicts himself in the very next sentence. MSFT has done stock repurchases along with dividend payments.

Stock buybacks are easy. Let's say that the market values the entire company at $500 B and there are 1 B shares. That means that each share is valued at $500.

Now, if Apple buys back 10% of its shares, there are only 900 M shares in circulation, but the market valuation doesn't change (the cash is replaced with something of equal value - the shares). So the share price would be about $555.

There is absolutely no valid evidence to support your argument that a dividend increases share price. In fact, you will find that dividends tend to be used by companies with low or no growth and companies with fast growth tend not to use dividends. Basically, you use a dividend if you can't find a way to invest the money in the business to grow the business.

Your choice of examples is actually not as good as mine, but if you want to have it that way, look at Microsoft's growth rates before they started giving a dividend and after. They grew a rapid rates until they started the dividend and they've been flat (or down) since then.

There have been studies that show dividends are beneficial to stock prices.

So how much does Apple have for a reasonable buyback? Don't say $100 billion because that is false. You have to exclude monies tied up in securities and funds that would have to be transferred from another country thus being taxed. For instance, take the number of US held shares and the amount of US cash reserves (and cash that would come up in short and long term securities maturing) and you can find what they have per share.

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Apple doesn't seem well suited to the banking business. At least philosophically. Sure they have enough money to enter any business they choose, however, keep in mind that they have suggested one of the secrets to their current success can be attributed to keeping their product line lean. I don't remember how many products they said but it is astoundingly low for a fortune 100 company.

I think Apple entering the banking industry would flop just like Apple entering the social network industry did. They should concentrate on insanely great tech and leave banking to the bean counters.

Apple doesn't seem well suited to the banking business. At least philosophically. Sure they have enough money to enter any business they choose, however, keep in mind that they have suggested one of the secrets to their current success can be attributed to keeping their product line lean. I don't remember how many products they said but it is astoundingly low for a fortune 100 company.

I think Apple entering the banking industry would flop just like Apple entering the social network industry did. They should concentrate on insanely great tech and leave banking to the bean counters.

I'm not suggesting that Apple follow in the footsteps of Bank of America, I'm suggesting they just continue doing what they've been doing for a decade with iTunes Store and now with their ability to pay for items with your iPhone at an Apple Store.. just with all other stores.

If they would no longer have to pay a percentage fee to MC and Visa per transaction they could pass some of that savings back to you in terms of free iTS merchandise which is just another win for them.

The only change they have to make is to add NFC (which is surely coming anyway) and have a way for direct deposit added to your account. No need to do home loans and other banking solutions.

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I don't care about speculation about dividends. The interesting part of the article was this bit:

But he believes the creation of a dividend could create a "scarcity issue" for AAPL shares, as the iPhone maker's stock is currently under-owned by institutions. Even though Apple is the largest stock in the Russell 1000, 40 percent of mutual funds indexed to the Russell 1000 do not have Apple as a top 10 holding.

In addition, Moskowitz noted that 77 percent of Apple's shares are held institutionally. That's lower than the average among companies in the S&amp;P 500, and it's also lower than the average technology sector holding.

First, an index fund is supposed to mimic the thing it's indexed against. And somehow 40% of funds (supposedly) indexed against the Russell 1000 do not have the single biggest stock in their top-10? Sounds like 40% of index funds need to check their math.

The second paragraph is probably misleading. On the face of it, it implies that fund managers are less likely to invest in Apple than other stocks. That would be pretty bad, since AAPL has been one of the best investments available in recent years. But as I said, I suspect that's a misinterpretation. There are few fund managers not betting on AAPL. I expect the reason why "just" 77% of shares are held by institutional investors is because AAPL is incredibly popular with regular people (non-institutional investors) like myself. It's been such a success story in recent years that everyone and his mother is buying Apple stock. Thus, the interesting part is that 23% of shares are owned by individual investors. That makes sense. My portfolio consists of lots of mutual funds and stock in one company (and guess which investment I'm happiest with).

There are many reasons to buy back stock but in the case of Apple doing so would strengthen each share. It would be, among other things, an indication from Apple that their stock price is undervalued..

All companies that buy back stock believe its undervalued. No company would buy back stock that they feel is fairly or overly valued.

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Originally Posted by SolipsismX

People who buy stocks to get dividends from a stock that doesn't offer dividends is an idiot. I say this as a person who retired at 30 and lives solely off my stock dividends. I bought Apple and other non-dividend stocks because I expected a growth in the stock value itself.

In general I don't think it's a good idea for tech companies to pay dividends because of the volatility of the market. Apple can surely afford to pay them but look back to when people expected Apple to pay them. They now pay out more in lump sum cash payments for components than they had cash just a few years ago. In tech you need a bigger safety net than other markets.

But even if you are buying a growth stock eventually you hope to share in its profits, no?

That's the raison d'être of owning a business, either directly or through holding the stock. Apple have nearly 100 billion in cash and its equivalents. The only reason NOT to pay a dividend is if you think they are immediately going to start loosing money. Possible but very unlikely. Sure Apple could loose money five years form now, but companies suspend their dividends ar reduce them under those circumstances. Thats how businesses operate.

But at this point I feel Apple should start paying a dividend out of their enormous free cash flow. They are throwing off a billion per month now IIRC. There can't spend that money strategically on anything. A chip processing facility, which is extremely expensive to build, ask AMD, only (I know its ironic to use this term in this context) costs 5 billion USD. Data farm, 1-2 billion. These costs are now insignificant for Apple. Its time for a dividend.

Nothing there that constitutes definitive evidence that a dividend would increase AAPL's share price. It's mostly opinion with a couple of examples of companies that increased their dividends. No cause and effect.

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Originally Posted by syracuse

There have been studies that show dividends are beneficial to stock prices.

They focused on corporate earnings growth over ten-year periods between 1871 and 2001 and found that earnings grew the fastest following years in which companies dividend-payout ratios were the highest.

They've confused cause and effect. Companies that are doing well pay more in dividends. And companies that are doing well tend to do well the next year, as well. Essentially, all their 'evidence' shows is that companies give more dividends during good economic times and tend not to give dividends when there are clouds on the horizon. There's nothing there that indicates that the dividends cause (or even contribute to) growth.

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Originally Posted by syracuse

MSFT and AAPL are not the same company.

MSFT has been doing stock buybacks along with dividends. You can't then argue that it was the dividend that flatlined MSFT and then ignore the stock repurchases.

First, someone asked for an example of a company that went from not giving dividends to giving dividends and I presented MS as an example.

Second, it doesn't matter. There are plenty of other examples. Simple Investing 101 tells you that reducing the number of shares in circulations will increase the average share price if everything else remains constant. There is absolutely no such relationship for issuing dividends.

Furthermore, you're completely misrepresenting my position - as you've done all through the entire dividends debate. I fully expect that at some point Apple will have to distribute cash to shareholders. I just can't see how they can effectively use the cash that they're generating.

HOWEVER, my argument is (and has always been) that it's up to the Board and Management to decide when that time is right. No one on this forum or any of the idiot analysts who keep chiming in on the subject is in a position to dictate when Apple should do so. You buy AAPL if you're confident in the management's ability to make decisions like that. If you're not confident in their ability to make that decision, don't buy the stock.

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

But at this point I feel Apple should start paying a dividend out of their enormous free cash flow. They are throwing off a billion per month now IIRC.

More than a billion a week, at least based on the Q1 2012 rate of accumulation. Last quarter they were net an eye-popping $16b. Probably this won't be repeated in Q2, but the rate is certainly accelerating so adding another $50b this year is very much in the realm of possibility. It's a gargantuan sum growing at a breakneck rate. So even an extremely generous 3% dividend would cost Apple less than a third of the additional cash they are likely to accumulate this year. Instead of $150b they'd have to get by on $135b.

Nothing there that constitutes definitive evidence that a dividend would increase AAPL's share price. It's mostly opinion with a couple of examples of companies that increased their dividends. No cause and effect.

Both the cause and the effect are right there. Nothing is ever definitive but the evidence is very strong.

More than a billion a week, at least based on the Q1 2012 rate of accumulation. Last quarter they were net an eye-popping $16b. Probably this won't be repeated in Q2, but the rate is certainly accelerating so adding another $50b this year is very much in the realm of possibility. It's a gargantuan sum growing at a breakneck rate. So even an extremely generous 3% dividend would cost Apple less than a third of the additional cash they are likely to accumulate this year. Instead of $150b they'd have to get by on $135b.

Exactly.

Its a ridiculous amount of profit that Apple is generating. They can build a server farm out of 2 weeks worth of Q4 profits.

Any business or company that Apple might want to acquire that would need 100 billion in order to be bought, Intel (135 bil market cap) or Comcast (65 bil market cap), probably would be blocked by regulators.

Bull. There's no cause and effect there. There's simply correlation. Companies that earn more money are paying more dividends and vice versa. IOW "when times are good, dividend-paying companies pay more dividends".

You really need to study some logic.

Oh? Maybe you need to read the article. As it says very clearly, many institutional investors can't buy AAPL now because they pay no dividend. This means that the institutional investment market for AAPL is pretty much tapped out currently, but will open up to new customers if/when the company declares a divided. Perhaps this logic is just too straight forward for you to understand.

Oh? Maybe you need to read the article. As it says very clearly, many institutional investors can't buy AAPL now because they pay no dividend. This means that the institutional investment market for AAPL is pretty much tapped out currently, but will open up to new customers if/when the company declares a divided. Perhaps this logic is just too straight forward for you to understand.

There's no point discussing it when you simply make things up.

For example, why don't you point to ANY institutional investors who can't buy a stock that doesn't pay dividends - much less 'many'?

"I'm way over my head when it comes to technical issues like this"Gatorguy 5/31/13

Agreed. Lets say Apple's cash hoard has $50B here in the USA and $50B overseas. Wouldn't Apple have to pay corporate taxes at 35% repatriating the overseas cash before they pay out a dividend?

I don't know. Could someone educate me on this topic?

First of all, no corporation pays the full 35% rate. The effective rate is usually much lower due to all the dodges and loopholes built into the tax code. Second, the tax rate they pay for repatriation is less the foreign tax paid. So what they'd pay would depend on where the money was earned.

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Originally Posted by backtomac

Exactly.

Its a ridiculous amount of profit that Apple is generating. They can build a server farm out of 2 weeks worth of Q4 profits.

Any business or company that Apple might want to acquire that would need 100 billion in order to be bought, Intel (135 bil market cap) or Comcast (65 bil market cap), probably would be blocked by regulators.

Thank you for grasping the scale. Few do, for some unknown reason.

FWIW, acquisitions of public companies typically involve some sort of stock swap, so they are not usually totally cash-in-hand deals.

Agreed. Lets say Apple's cash hoard has $50B here in the USA and $50B overseas. Wouldn't Apple have to pay corporate taxes at 35% repatriating the overseas cash before they pay out a dividend?

I don't know. Could someone educate me on this topic?

Since they have already paid taxes on the earnings in the US, they could distribute those without taking a tax hit. If they transfer money from their overseas subsidiaries to the US parent, that is what would trigger additional tax (above and beyond what they already paid the overseas authorities).

Oh? Maybe you need to read the article. As it says very clearly, many institutional investors can't buy AAPL now because they pay no dividend. This means that the institutional investment market for AAPL is pretty much tapped out currently, but will open up to new customers if/when the company declares a divided. Perhaps this logic is just too straight forward for you to understand.

You are SPOT on. And so is the note from the analyst.

Their is a large investor base of Mutual Funds that would LOVE to own AAPL but CAN'T. If AAPL pays a dividend those Mutual Funds will buy AAPL.

For example, why don't you point to ANY institutional investors who can't buy a stock that doesn't pay dividends - much less 'many'?

Don't show off your ignorance. Dr Millnoss is correct, there are many investment funds that won't / can't buy non-dividend paying stock. The article indirectly mentions that with; ""In other words, Apple is substantially under-owned by major investment funds, particularly those focused on income, i.e., dividend," and I own shares in two such mutual funds.

"A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools." Douglas Adams

I do not want or need dividends. It only subjects me to tax. I own APPL for my retirement, which is many years away. When I need to access the money, I can sell the stock and pay capital gains tax rates, so who needs a dividend? A stock buyback on the other hand, is fine. By reducing the number of outstanding shares while profit is still on a strong upward swing, it is the best way to maximize the value per share. Thankfully, Tim Cook and the board understand these things, as evidenced by Tim's remarks at the shareholder meeting.

The funniest thing is that Steve Jobs was living off of stock dividends before he died. Apple was only paying him $1 per year in salary.

Jobs was raking in about $70 million a year in Disney dividends as the largest individual shareholder. His holdings were transferred into a private trust, so it's likely that his family continues to rake in the dough.

I remember Steve talking about focus and how that meant saying NO to ideas. Some that are even good ideas but that by saying NO to some ideas that allowed their focus to be sharpest on the best ideas.

This is a ridiculous idea for a tech company like Apple. Its beyond their core competency and I would sell Apple stock immediately if they announced such a stupid plan. I think others would as well.

Then again others would probably buy them just because of that.

And didn't Steve go into movie buissnes, which was at that time about as far from manufacturing computer hardware as getting into banking today. If Steve would have been as close minded as you suggest, he wouldn't have established the No.1 tech company of the world.

But don't get me wrong. I am not obsessed by this idea of Apple going iBank. The idea however is quite entertaining to me. And as I said, after some consideration, not completely crazy.

Second, that would result in an immediate drop of around $50 per share in value (look up my post in the other thread where I provided evidence that this would happen based on other companies and mutual funds which have offered large dividends).

Third, there would be a large corporate income tax hit in bringing the money back to the U.S. That would probably cause the stock to drop by MORE than the value of the dividend.

Fourth, there would be a large tax hit to the dividend recipient since dividends are taxable income. The result is that I would receive less money than the drop in the value of the stock.

Fifth, the argument that a dividend would have a positive effect on the share price is nothing more than unfounded speculation. Compare Microsoft to Apple for the past 10 years. Microsoft offers a dividend, Apple does not. Or Dell. Or almost any other company. If an institutional investor is not happy with the returns that AAPL has generated over the past decade, a dividend won't change their mind.

Overall, it's a crazy idea. If they really want to use the money to shore up stock prices, a stock buyback makes infinitely more sense.

To reply:

1 - yes, typo, sorry. $50 per share.
2 - Yes, that's how math works. Your shares go down by roughly $50 per share, and you get $50 per share in hand. How else would anyone expect it to work?
3 - Yes, that is a shame. And I'm hoping that the USA will allow that to be cut significantly in a one-time holiday. But A tax hit on $50 per share is better than no tax hit and shareholders get no cash.
4 - Those of us who hold Apple in retirement funds don't care. The rest, do. But again, paying taxes on income is better than not paying taxes because you have no income.
5 - I didn't say it would have a positive effect on the share price. I get to spend the $50 per share as I see fit, which is better for me than having it sit in a bank account (or a brokerage account in CDs).

I agree that a buyback would be preferable as well, but that is not what this discussion is about.